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Tax Definitions Terminology

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Adjusted Gross Income (AGI) Adjusted gross income (AGI) is a special calculation of income that determines your eligibilit...
Adoption Credit and Adoption Assistance Programs For taxpayers who adopted an eligible child, an adoption tax credit and exclusion are availabl...
Allocated tips The basic idea behind allocated tips is that if you work in a restaurant, cocktail lounge, or ...
American Opportunity Tax Credit The American Opportunity Tax Credit helps students and parents pay for college expenses. ...
Archer Medical Savings Account (MSA) Archer MSAs are tax-exempt trusts or custodial accounts set up with a U.S. financial instituti...
Basis The basis of a piece of property is usually the cost at which you bought it. This can include ...
Cancellation of Debt Exclusion If a debt you incurred is successfully cancelled by the lender the amount of the debt is gener...
Capital Gains or Capital Losses Capital gains occur when a capital asset, such as a home, household furnishings, real estate, ...
Casualty Loss Deductions A casualty loss against your home, household items, or vehicle, resulting from property damage...
Charitable Contributions Charitable contributions, in cash or in property donated to qualified organizations, are tax d...
Child Tax Credit The Child Tax Credit allows you to reduce your income tax burden by up to $1,000 per qualifyin...
Credit A tax credit is a special tax break that reduces the total amount of tax you owe the governmen...
Deductible Taxes There are five types of non-business taxes you can deduct on your federal tax return:
Deduction A tax deduction is a special tax break that reduces the amount of income on which you are taxe...
Dependency Exemption In addition to the Personal Exemptions for you and your spouse, the IRS allows you to substrac...
Dependent A dependent is either a child or a relative who lived with you or whom you supported. Claiming...
E-File (Electronic Filing) E-file allows you to transmit your return and other tax information directly to the IRS over t...
Earned Income Earned income is income that you had to work to earn, either working for someone else who pays...
Earned Income Credit The Earned Income Tax Credit is a refundable credit that helps low and moderate income workers...
Educator Expenses Deduction Eligible educators can deduct up to $250 of expenses for books, supplies, computer equipment, ...
Electronic Return Originator (ERO) An Electronic Return Originator (ERO) is the authorized IRS e-file provider that originates th...
Eligible Educational Institution Any college, university, vocational school, or other postsecondary educational institution eli...
Failure-to-File Penalty The failure-to-file penalty results when you do not file your tax return by the deadline.
Failure-to-Pay Penalty As its name suggests, the failure-to-pay penalty results when you fail to pay your taxes by th...
Filing Status There are five possible filing statuses, based on your marital status and family circumstances...
Financial Records The IRS requires you to keep financial records for at least three years after you file your re...
First-Time Homebuyer Credit The first-time homebuyer tax credit is a special tax break available to qualified taxpayers wh...
Head of Household Filing Status Head of household is a special filing status that allows for several unique tax breaks such as...
Health Savings Accounts (HSAs) A health savings account (HSA) is a tax-exempt trust or custodial account created to pay or re...
Home Mortgage Interest Deduction The Home Mortgage Interest deduction allows you to deduct the interest paid in a given year on...
Hope Credit The Hope Credit is a tax credit available to help students, or their parents and spouses, pay ...
Individual Retirement Account (IRA) Deduction Contributions to traditional IRAs and Roth IRAs are tax deductible, reducing your taxable inco...
Interest When you fail to file your tax return on time or pay your tax due, not only will you face fail...
Lifetime Learning Credit The Lifetime Learning Credit is one of two tax credits, along with the
Making Work Pay Tax Credit A component of the Stimulus, the Making Work Pay Credit was available for the 2009 and 2010 ta...
Married Filing Jointly Filing Status Married filing jointly is one of two filing statuses available to married taxpayers, the other...
Married Filing Separately Filing Status Married filing separately is one of two filing statuses available to married taxpayers, the ot...
Modified Adjusted Gross Income Also known by its acronym MAGI, the modified adjusted gross income is figured by adding back t...
Mortgage Insurance Premium Tax Deduction Your mortgage insurance premiums may be tax deductible, but you must itemize deductions in ord...
Ordinary Dividends Dividends are what the shareholders of a company get, as their share of the company’s profits....
Personal Exemption A personal exemption is a tax deduction that allows you to reduce your taxable income, thus re...
Principal Residence Your principal residence, also known as your main home, is the home you live in most of the ti...
Qualified Charitable Distribution Qualified charitable distributions allow IRA owners over the age of 70.5 to directly transfer ...
Qualified Dividends Dividends are divided into two broad categories:
Qualified Education Expenses The various education credits available to students and those who pay for them are based on th...
Qualifying Child A qualifying child allows you to claim several tax breaks not available to taxpayers without c...
Qualifying Relative A qualifying relative allows you to claim an additional exemption and reduce your taxable inco...
Qualifying Widow(er) with Dependent Child Filing Status Those who lose a spouse during that tax year can file a joint return for the tax year of their...
Railroad Retirement Benefits Created in the 1930s, the Railroad Retirement Board (RRB) is a government agency that serves r...
Roth IRA A Roth IRA is an individual retirement account (IRA) that is generally subject to the same rul...
Sales Tax Deduction for Vehicle Purchases The Sales Tax Deduction for Vehicle Purchases is a tax deduction that allows taxpayers to dedu...
Self-Employed Health Insurance Deduction Self-employed taxpayers with a net profit for the year may be able to deduct the amount they p...
Self-employment Profit/Loss Subtract your self-employment expenses from your self-employment income. If the difference is ...
Single Filing Status Single is the default filing status for taxpayers who are unmarried or considered unmarried.
Standard Deduction The standard deduction is a set amount, adjusted yearly for inflation, that can be subtracted ...
Standard Mileage Rates The standard mileage rates are optional set rates that employees, self-employed individuals, a...
State and Local Sales Tax Deduction Those who itemize deductions on Schedule A have the option of claiming either state and local...
Support For the purpose of determining if someone is your dependent, total support includes the amount...
Tax Avoidance Tax avoidance consists of taking legal steps to lessen your tax liability and maximize after-t...
Tax Bracket Under a progressive income tax code like the U.S.’s, tax brackets are the different levels at ...
Tax Evasion Tax evasion is a deliberate and illegal effort to avoid paying taxes. Usually tax evasion take...
Tax Liability Your tax liability is the amount of money you owe the government. Taxpayers meet (or pay) thei...
Tax-exempt Interest Income Interest income that is not subject to income tax. Tax-exempt interest income is earned from b...
Taxable Interest Income Generally, any interest that you receive, or that is credited to your account and can be withd...
Telephone Excise Tax Refund The Telephone Excise Tax Refund (TETR) was implemented to return excise taxes...
Tip Income This refers to cash tips you get directly from customers, tips from customers using charge car...
Tuition and Fees Deduction The tuition and fees deduction allows you to deduct up to $4,000 of qualified educational expe...
Unearned Income includes interest, dividends, capital gains, unemployment compensation, taxable Social Securit...
Withholding ("Pay-as-you-earn") Money, for example, that employers withhold from employees paychecks. This money is deposited ...